10-K 1 form10k.txt FORM 10-K 12-31-02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-1093 KAMAN CORPORATION (Exact Name of Registrant) Connecticut 06-0613548 (State of Incorporation) (I.R.S. Employer Identification No.) 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002 (Address of principal executive offices) Registrant's telephone number, including area code- (860) 243-7100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: -Class A Common Stock, Par Value $1.00 -6% Convertible Subordinated Debentures Due 2012 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated herein by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes (X) No ( ) State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $351,907,817 as of June 30, 2002. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date (February 1, 2003). Class A Common 21,804,152 shares Class B Common 667,814 shares DOCUMENTS INCORPORATED HEREIN BY REFERENCE Portions of the Corporation's 2002 Annual Report to Shareholders are incorporated herein by reference and filed as Exhibit 13 to this Report. PART I ITEM 1. BUSINESS Kaman Corporation, incorporated in 1945, reports information for itself and its subsidiaries (collectively, the "corporation") in the following business segments: Aerospace, Industrial Distribution, and Music Distribution. The Aerospace segment serves commercial as well as domestic and foreign defense markets with a variety of products, including the SH-2G Super Seasprite naval helicopter and the K-MAX medium-to- heavy lift helicopter; aircraft structures and components for commercial and military aircraft, including specialized aircraft bearings; and various advanced technology products for specialized applications, including missile and bomb fuzing devices. The Industrial Distribution segment provides bearings and power transmission, motion control, material handling and electrical components as well as value-added services to a highly diversified cross-section of North American industry. The Music Distribution segment serves domestic and foreign markets with a wide variety of musical instruments and accessories for amateur and professional musicians. AEROSPACE In the Aerospace segment, programs involving helicopter manufacturing, spare parts and support represented approximately 31% of 2002 sales, compared to approximately 41% in 2001. Aerostructure and helicopter subcontract work along with production of components such as self-lubricating bearings and driveline couplings for aircraft applications represented about 48% of segment sales in 2002, compared to about 42% in 2001. Advanced technology products represented approximately 21% of segment sales in 2002, compared to 17% in 2001. In the second quarter of 2002, the corporation recorded a pre- tax charge of $86.0 million attributable to the Aerospace segment (of which $52.7 million was non-cash), which included a $25.0 million charge for cost growth associated with the Australia SH-2G(A) program; $50.0 million for the write-down of K-MAX helicopter assets, principally inventories; and $11.0 million for the anticipated costs to phase out operations at the Corporation's Moosup, Connecticut manufacturing facility by the end of 2003. In the second quarter of 2001, the corporation recorded a $31.2 million sales and pre-tax earnings adjustment related to cost growth in the Australia helicopter program. The segment's helicopter programs include the SH-2G multi- mission naval helicopter and the K-MAX (registered trademark) Page 1 medium-to-heavy external lift helicopter. The SH-2G helicopter represents the vast majority of the segment's helicopter program sales and generally consists of retrofit of the corporation's SH- 2F helicopters to the SH-2G configuration or refurbishment of existing SH-2G helicopters. The SH-2, including its F and G configurations, was originally manufactured for the U.S. Navy. The SH-2G aircraft is currently in service with the Egyptian Air Force and the Royal New Zealand Navy. The corporation is continuing performance of programs for Australia and Poland. The retrofit program for New Zealand, which involved five aircraft with support, is essentially complete. During 2002, four aircraft were accepted and put into service by the New Zealand government. The fifth and final aircraft, which was purchased under an option to the original contract, has been delivered and is now in the customer's flight acceptance test process. The contract has an anticipated value of about $189 million (US) of which about 98% was recorded as sales through December 31, 2002. Work continued during 2002 on the SH-2G(A) retrofit program for Australia. This program involves eleven helicopters with support, including a support services facility, for the Royal Australian Navy (RAN). The total contract has an anticipated value of about $711 million (US) and the helicopter production portion of the program is valued at approximately $590 million (US) of which about 91% was recorded as sales through December 31, 2002. This program is now in a loss position due to the previously mentioned charge taken in second quarter of 2002 and pre-tax sales and earnings adjustment taken in the second quarter of 2001. Both items are related to cost growth in the program stemming largely from a contract dispute with the original subcontractor responsible for development of the aircraft's Integrated Tactical Avionics System (ITAS) hardware and software (a feature unique to the Australia program). Settlement of that dispute in 2001 resulted in the need to hire replacement subcontractors for the balance of the ITAS software development and the corporation's assumption of final integration testing responsibility. An additional loss accrual was recognized in the fourth quarter of 2002 in connection with higher overhead rates across all active programs in the corporation's Kaman Aerospace subsidiary. Ten of the Australia aircraft are substantially complete; the corporation has retained the eleventh aircraft for test purposes. All of the aircraft lack the full ITAS software and the replacement subcontractors are in the process of completing this element of the program. The corporation and the RAN have reached agreement on a plan for phased acceptance of the aircraft and completion of aircraft deliveries. Under the agreement, phased acceptance is contingent upon the RAN's Page 2 satisfaction with the corporation's progress with respect to certain important project milestones during 2003. The corporation currently expects that the software will be fully completed, installed and operational on all of the Australia aircraft by the end of 2004. The corporation is continuing work on a small contract to refurbish four existing SH-2G aircraft previously in service with the U.S. Navy Reserves to operate aboard two Polish Navy frigates in multi-mission roles such as surface surveillance and anti-submarine warfare. The program involves reactivation of the aircraft, training, and logistics support, including delivery of initial spares components. Reactivation of two aircraft was completed in the fourth quarter of 2002 and they have been accepted. Reactivation of the other two aircraft is underway and is scheduled for completion by the end of 2003. During 2002, the corporation continued to provide on-site support in the Republic of Egypt for ten SH-2G helicopters that were delivered in 1998 under that country's foreign military sale agreement with the U.S. Navy. The corporation is also participating in a competition to supply up to six search and rescue helicopters to Egypt, proposing to supply remanufactured SH-2Gs for that requirement. The corporation's involvement in this process began in early 1999. Based upon discussions with Egyptian officials during recent visits, management believes that the selection process is being further delayed and is not likely to result in an award announcement in 2003. The corporation is actively pursuing other opportunities for the SH-2G helicopter in the international defense market. This market is highly competitive and heavily influenced by economic and political conditions. However, management continues to believe that the aircraft is in a good competitive position to meet the specialized needs of navies around the world that operate smaller ships for which the SH-2G is ideally sized. The corporation also maintains a consignment of the U.S. Navy's inventory of SH-2 spare parts under a multi-year agreement that provides the corporation the ability to utilize certain inventory for support of its SH-2G programs. The corporation also manufactures the K-MAX medium-to-heavy lift helicopter that can be used in a variety of applications, including fire fighting, logging, construction, and logistics support. The program began in 1994 and has experienced significant market difficulties in the past several years. In the second quarter of 2002, based upon a current market evaluation of the aircraft, management made a determination that Page 3 it would produce further aircraft only upon firm order by a customer and would pursue both a sale and short-term lease program for existing new and used K-MAX aircraft inventory. During 2002, three used aircraft were leased and two used aircraft (one of which had been under lease) were sold under that program. In connection with the decision made in the second quarter, the corporation wrote down the value of existing aircraft, excess spare parts, and equipment inventories. Development costs for the aircraft were expensed in the past. On a going forward basis, the corporation intends to maintain adequate inventories and personnel to support the fleet. In the second quarter of 2002, management made the decision to phase out the corporation's aircraft manufacturing plant in Moosup, Connecticut by the end of 2003. This is the oldest and least efficient of the corporation's facilities and the work performed there will be relocated to other company facilities. In connection with this closure, the corporation expects that the employment of approximately 400 individuals located in Bloomfield and Moosup, Connecticut will be eliminated. The Aerospace segment also performs aerostructure and helicopter subcontract work for a variety of aerospace manufacturing programs and produces proprietary self-lubricating bearings. This business is an area of strategic emphasis for the corporation, however performance was adversely affected by weakness in the commercial aerospace market during 2002. Aerostructures subcontract work involves commercial and military aircraft programs. Current programs include production of wing structures for virtually all Boeing commercial aircraft and the C-17 military transport. In the third quarter of 2002, the corporation received a follow-on contract from Boeing for C-17 structural components. The contract runs through June 2007 and has a potential value of $67.5 million. During the second quarter of 2002, the corporation received a new contract from Boeing under which the segment will receive and assemble additional parts from other suppliers and ship higher-level assemblies to Boeing. These assemblies will become part of aircraft fuselages, wings and tail structures for Boeing 747, 757, 767, and 777 families of commercial airplanes. In addition, the corporation acquired Plastic Fabricating Company, Inc., a Wichita, Kansas manufacturer of composite parts and assemblies for aerospace applications, in December 2001. This acquisition has complemented the segment's existing composites and metal bonding operations and provided the segment with a presence in one of the largest aerospace manufacturing areas in the United States. Helicopter subcontract work involves commercial helicopter programs. Current work includes multi-year contracts that were Page 4 awarded in 2000 for production of fuselages and rotor systems for various MD Helicopters, Inc. (MDHI) aircraft. Total orders received from MDHI continue to run at significantly lower sales rates than originally anticipated due to lower than expected demand. The corporation has developed a large investment in these contracts (including receivables, start-up costs, and other program expenditures) and has experienced difficulty with receipt of payments from MDHI. Management is concerned about this exposure and is working with MDHI in an effort to address their payment issues. The segment's proprietary self-lubricating bearings are used in aircraft flight controls, turbine engines and landing gear as well as driveline couplings for helicopters. During 2002, this business continued to be affected by the drop-off in commercial and regional aircraft manufacturing, although the effect has been offset to some degree by increases in commercial aftermarket and military programs. In July 2002, the corporation acquired RWG Frankenjura-Industrie Flugwerklager GmbH ("RWG"), a privately held German aerospace bearing manufacturer. RWG complements the corporation's proprietary line of bearings and provides a presence in European aerospace markets. RWG had sales of about US $10 million in 2001 and its largest customer is Airbus Industrie. The Aerospace segment also produces advanced technology products and this portion of the segment's business is benefiting from increased defense spending. These products involve systems, devices and assemblies for a variety of military and commercial applications, including safe, arm and fuzing devices for several missile and bomb programs; high reliability memory systems for airborne, shipboard, and ground-based programs; precision non- contact measuring systems for industrial and scientific use; and electro-optic systems for mine detection and other applications. Advanced technology products is also an area of strategic emphasis for the corporation. In July 2002, the corporation completed its acquisition of the assets and certain liabilities of Dayron (a division of DSE, Inc.), a weapons fuze manufacturer, located in Orlando, Florida. Dayron manufactures bomb fuzes for a variety of munitions programs, and has the contract to develop a fuze for the U.S. Air Force and Navy Joint Programmable Fuze (JPF) program. As a result of qualification test results received during the first quarter of 2003, the corporation is evaluating the need for certain changes to the fuze and its production process. In addition, a new government requirement has been identified for which the corporation expects to receive a contract modification in the near term. Management currently expects to complete changes, if any, and resume final qualification testing by early in the third quarter of 2003. Page 5 In the third quarter of 2002, the corporation was selected to participate on a Northrop-Grumman led team for a U.S. Navy program to design and develop the Rapid Airborne Mine Clearance System, a helicopter-borne clearance capability system for near surface and surface moored sea mines that will provide airborne mine defense for carrier battle groups and amphibious ready groups. The corporation will be responsible for the laser-based target sensor subsystem development. The 36-month subcontract is valued at approximately $7.6 million. In October 2002, the corporation was selected to participate with the University of Arizona to build a collimator used for testing large optical systems in a vacuum environment. The corporation's portion of the five-year contract is valued at about $12.8 million, with the majority of the work expected to occur in 2003. During the past twelve months, the corporation sold two non-core portions of the Aerospace segment. Specifically, in the second quarter of 2002, the corporation sold its microwave products line. That product line was associated with the former Kaman Sciences Corp. subsidiary which was sold in 1997. Microwave product sales were about $7.5 million in 2001. In January 2003, the corporation sold its Electromagnetics Development Center (EDC), an electric motor and drive business that had sales of approximately $14 million in 2002. The EDC is part of the industry team selected by the U.S. Navy to design the integrated electric drive system for the Navy's DD(X) next generation surface vessel. Also during 2002, a common lean thinking methodology was adopted in manufacturing and office environments across the segment and results have included elimination of production time and parts travel, and required square footages for the segment's activities. The application of lean thinking principles continues. Due to the lack of new helicopter production orders, in combination with the wind down of the New Zealand and Australia SH-2G programs and weakness in the commercial aerospace market, significant measures are being taken in the corporation's Kaman Aerospace subsidiary in order to attempt to bring operating overheads in line with a lower business base. These steps have included the charge already described to phase out operations at the Moosup, Connecticut production facility and continuing reductions in the segment's workforce. As a result of lower production levels, active programs must absorb overhead expenditures at higher rates, and in the fourth quarter of 2002 these increased overhead rates resulted in higher costs, lower program profitability and loss accruals for a few long-term programs, including certain Boeing work, and the additional loss accrual for the Australia SH-2G program that was previously described. Page 6 INDUSTRIAL DISTRIBUTION This segment, one of the nation's larger industrial distributors, offers more than 1.5 million items as well as value-added services to a base of more than 50,000 customers spanning nearly every sector of U.S. industry. Distributed items are supplied by some 1,400 manufacturers and include bearings and power transmission, motion control, materials handling, fluid power and linear motion components. The segment's top ten suppliers (listed alphabetically) include Baldor Electric, Emerson (EMT), Falk Corporation, Gates Rubber, Rexnord, Rockwell Automation, SKF, Thompson Industries, Timken, and the Torrington Company. The segment serves 67 of the top 100 industrial markets in the United States with a system of strategically located warehouses and service centers. Additional facilities are located in Canada and Mexico through which the segment serves local customers and large enterprises whose plants span North America. In executing the segment's strategy to expand its geographic coverage through both acquisitions and internal growth, the segment acquired a majority of the assets and certain liabilities of A-C Supply, Inc., located in the upper Midwest, in 2001 and a 60% equity interest in Delamac de Mexico S.A. de C.V. ("Delamac"), a distributor of industrial products headquartered in Mexico City, in the first quarter of 2002. These acquisitions have expanded the segment's presence into new geographical areas and improved its ability to serve national account customers. In addition, during 2002, the segment opened two locations in Roanoke and Lynchburg, Virginia and one location in Omaha, Nebraska. The segment's value-added services and systems assist customers to lower costs and improve their processes. Services include same or next day delivery for most customers across North America, current order accuracy from its warehouses at over 99%, and trained, knowledgeable customer service personnel. The segment was named Supplier of the Year by Frito Lay North America in 2002 and was designated 2002 Majority Supplier of the Year for minority business utilization by Procter & Gamble. During 2002, the segment launched a new, updated version of its e-commerce website. The new site provides a computer-to computer link that features a complete electronic catalog, allowing on-line ordering and payment, and supporting inventory management. This website increases customer convenience and reduces paperwork and costs. The segment's business is influenced by industrial production levels and has been adversely affected by conditions in the manufacturing sector that have existed since late 2000. These Page 7 difficult economic conditions are continuing, however cost reduction activity helped the segment to remain profitable in 2002. And particularly in this economic environment, the industry's practice of providing vendor incentives was an important contributor to the segment's operating profits. In the past, this segment has been one of numerous defendants in a few "John Doe" type legal proceedings, and generally relating to parts allegedly supplied to the U.S. Navy's shipyard in San Diego, California by a predecessor company over 25 years ago, that may have contained asbestos. The corporation settled those few claims for nominal amounts with contribution by insurance carriers. In the third quarter of 2002, however, the corporation experienced an increase in such claims. Management believes that the segment has good defenses to these claims, which it will assert and does not currently expect that this situation will have a material adverse effect on the corporation. MUSIC DISTRIBUTION This segment is America's largest independent distributor of musical instruments and accessories, offering more than 10,000 products to retailers of all sizes, from national chains to independent shops, for musicians of all capabilities and skill levels. The segment had good results for 2002, reflecting sustained levels of consumer spending in the music retail market. Products include proprietary items such as the segment's own Ovation (registered trademark) and Hamer (registered trademark) guitars as well as Takamine (registered trademark) guitars offered under an exclusive North American distribution agreement; and distributed products such as TOCA (registered trademark) Latin style hand percussion instruments, Gibraltar percussion hardware, Sabian* cymbals and Gretsch* Drums. In October 2002, the segment acquired Latin Percussion, Inc., a leading global distributor of a wide range of Latin hand percussion instruments. To ensure high quality while offering value at different price points, the segment's products are manufactured both in the United States and abroad. The segment serves the needs of music retailers with an advanced distribution system and processes that are designed to assure speed and accuracy. Customers have access to the segment's website as well as phone, fax and e-mail ordering systems. The website provides electronic exchange of invoices and statements and customers can download high resolution images of the segment's products for their own marketing purposes. During 2002, the segment implemented a new inventory replenishment system in order Page 8 to strengthen inventory management and further improve just in time delivery schedules. In the third quarter of 2002, one of the Music Distribution segment's larger chain store customers, Mars Music, filed for Chapter 11 bankruptcy protection. The corporation's exposure as an unsecured creditor has been reserved for. *Sabian and Gretsch are registered trademarks of others. AVAILABLE INFORMATION The corporation's website address is www.kaman.com. The corporation's annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K as well as amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, together with Section 16 insider beneficial stock ownership reports, are available free of charge through the website as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission. The information contained in the corporation's website is not intended to be incorporated into this Annual Report on Form 10-K. FINANCIAL INFORMATION Information concerning each segment's performance for the last three fiscal years is included in the Segment Information section of the corporation's 2002 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and such section is incorporated herein by reference. PRINCIPAL PRODUCTS AND SERVICES Following is information for the three preceding fiscal years concerning the percentage contribution of each business segment's products and services to the corporation's consolidated net sales: Years Ended December 31 2000 2001 2002 ------ ------ ------ Aerospace 37.0% 34.4% 31.3% Industrial Distribution 50.5% 51.8% 54.2% Music Distribution 12.5% 13.8% 14.5% ------ ------ ------ Total 100.0% 100.0% 100.0%
Page 9 RESEARCH AND DEVELOPMENT EXPENDITURES Government sponsored research expenditures by the Aerospace segment were $9.8 million in 2002, $6.7 million in 2001, and $10.2 million in 2000. Independent research and development expenditures were $5.4 million in 2002, $4.7 million in 2001, and $5.5 million in 2000. BACKLOG Program backlog of the Aerospace segment was approximately $370.0 million at December 31, 2002 ($10.4 million of which was attributable to the EDC division of the Aerospace segment, which was sold on January 15, 2003), $364.9 million at December 2001, and $439.9 million at December 31, 2000. The corporation anticipates that approximately 54.6% of its backlog at the end of 2002 will be performed in 2003. Approximately 31.3% of the backlog at the end of 2002 is related to U.S. government contracts or subcontracts which are included in backlog to the extent that funding has been appropriated by Congress and allocated to the particular contract by the relevant procurement agency. Virtually all of these funded government contracts have been signed. GOVERNMENT CONTRACTS During 2002, approximately 90.9% of the work performed by the corporation directly or indirectly for the U.S. government was performed on a fixed-price basis and the balance was performed on a cost-reimbursement basis. Under a fixed-price contract, the price paid to the contractor is negotiated at the outset of the contract and is not generally subject to adjustment to reflect the actual costs incurred by the contractor in the performance of the contract. Cost reimbursement contracts provide for the reimbursement of allowable costs and an additional negotiated fee. The corporation's United States government contracts and subcontracts contain the usual required provisions permitting termination at any time for the convenience of the government with payment for work completed and associated profit at the time of termination. COMPETITION The Aerospace segment operates in a highly competitive environment with many other organizations, some of which are substantially larger and have greater financial and other resources. The corporation competes with other helicopter manufacturers on the basis of price, performance, and mission capabilities; and also on the basis of its experience as a Page 10 manufacturer of helicopters, the quality of its products and services, and the availability of facilities, equipment and personnel to perform contracts. Consolidation in the industry has increased the level of international competition for helicopter programs. The corporation's FAA certified K-MAX helicopters compete with military surplus helicopters and other used commercial helicopters employed for lifting, as well as with alternative methods of meeting lifting requirements. The corporation competes for its subcontract aerostructures, helicopter structures and components business on the basis of price and quality; product endurance and special performance characteristics; proprietary knowledge; and the reputation of the corporation. The corporation competes for its advanced technology fuzing business primarily on the basis of technical competence, product quality, and to some extent, price; and also on the basis of its experience as a developer and manufacturer of fuzes for particular weapon types and the availability of facilities, equipment and personnel. The corporation is also affected by the political and economic circumstances of its potential foreign customers. Industrial distribution operations are subject to a high degree of competition from several other national distributors, two of which are substantially larger than the corporation; and from many regional and local firms. Competitive forces have intensified due to weakness in the U.S. manufacturing sector that has existed since late 2000, the growth of major competitors through consolidation and the increasing importance of large national or North American accounts. Music distribution operations compete with domestic and foreign distributors. Certain musical instrument products manufactured by the corporation are subject to competition from U.S. and foreign manufacturers as well. The corporation competes in these markets on the basis of service, price, performance, and inventory variety and availability. The corporation also competes on the basis of quality and market recognition of its music products and has established trademarks and trade names under which certain of its music products are produced, as well as under private label manufacturing in a number of foreign countries. FORWARD-LOOKING STATEMENTS This report contains forward-looking information relating to the corporation's business and prospects, including the SH-2G and K-MAX helicopter programs, aerostructures and helicopter subcontract programs and components, advanced technology products, including fuzes for the JPF program, the industrial and music distribution businesses, operating cash flow, and other matters that involve a number of uncertainties that may cause actual results to differ materially from expectations. Those uncertainties include, but are not limited to: 1) the successful Page 11 conclusion of competitions and thereafter contract negotiations with government authorities, including foreign governments, including specifically the Egypt helicopter competition; 2) political developments in countries where the corporation intends to do business; 3) standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; 4) economic and competitive conditions in markets served by the corporation, including industry consolidation in the United States and global economic conditions; 5) attainment of remaining project milestones and satisfactory completion of the Australian SH-2G(A) program; 6) recovery of the corporation's investment in the MD Helicopter, Inc. contracts; 7) actual costs for moving equipment and re- certifying products and processes in connection with phase out of the Moosup, Connecticut facility; 8) JPF program final qualification test results and receipt of production orders; 9) achievement of enhanced business base in the Aerospace segment in order to better absorb overhead rates; 10) successful sale or lease of existing K-MAX inventory; 11) profitable integration of acquired businesses into the corporation's operations; 12) U.S. industrial production levels; 13) changes in supplier sales policies; 14) the effect of price increases or decreases; and 15) currency exchange rates, taxes, changes in laws and regulations, interest rates, inflation rates, general business conditions and other factors. Any forward-looking information should be considered with these factors in mind. EMPLOYEES As of December 31, 2002, the Corporation employed 3,615 individuals throughout its business segments and corporate headquarters as follows: Aerospace 1,729 Industrial Distribution 1,439 Music Distribution 376 Corporate Headquarters 71 ----- 3,615
PATENTS AND TRADEMARKS The corporation holds patents reflecting scientific and technical accomplishments in a wide range of areas covering both basic production of certain products, including aerospace products and musical instruments, as well as highly specialized devices and advanced technology products in defense related and commercial fields. Page 12 Although the corporation's patents enhance its competitive position, management believes that none of such patents or patent applications is singularly or as a group essential to its business as a whole. The corporation holds or has applied for U.S. and foreign patents with expiration dates that range through the year 2022. These patents are allocated among the corporation's business segments as follows: U.S. PATENTS FOREIGN PATENTS Segment Issued Pending Issued Pending Aerospace 39 2 14 4 Industrial Distribution 0 0 0 0 Music Distribution 31 2 37 63 -- -- -- -- 70 4 51 67
Registered trademarks of Kaman Corporation include Adamas, Applause, Hamer, KAflex, KAron, K-MAX, Magic Lantern, Ovation, LP and Latin Percussion. In all, the corporation maintains 298 U.S. and foreign trademarks with 46 applications pending, most of which relate to music products in the Music Distribution segment. COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS In the opinion of management, based on the corporation's knowledge and analysis of relevant facts and circumstances, compliance with any environmental protection laws is not likely to have a material adverse effect upon the capital expenditures, earnings or competitive position of the corporation. The corporation is subject to the usual reviews, inspections and enforcement actions by various federal and state environmental and enforcement agencies and has entered into agreements and consent decrees at various times in connection with such reviews. One such matter, Rocque vs. Kaman, is discussed in Item 3 (Legal Proceedings). In addition, the Corporation engages in various environmental studies and investigations and, where legally required to do so, undertakes appropriate remedial actions at facilities owned or controlled by it, either voluntarily or in connection with the acquisition, disposal or operation of such facilities. Also on occasion the corporation has been identified as a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency ("EPA") in connection with the EPA's investigation of certain third party facilities. In each instance, the corporation has provided appropriate responses to all requests for information that it has Page 13 received, and the matters have been resolved either through de minimis settlements, consent agreements, or through no further action being taken by the EPA or the applicable state agency with respect to the corporation. One such matter involved the Barkhamsted Landfill site located in New Hartford, Connecticut (the "Barkhamsted site") which the corporation has previously reported in its report on Form 10-Q for the quarter ended June 30, 2002, Document No. 0000054381-02-000022 filed with the Securities and Exchange Commission on August 14, 2002. The Corporation, together with other PRPs has entered into a consent decree with the EPA settling its involvement and responsibility for remediation of the site for a non-material amount, subject to certain contingencies which the corporation believes are reasonable. Such consent decree and settlement is in the process of being finalized in accordance with EPA procedures. With respect to any other such matters which may currently be pending, the corporation has been able to determine, based on its current knowledge, that resolution of such matters is not likely to have a material adverse effect on the future financial condition of the corporation. In arriving at this conclusion, the corporation has taken into consideration site-specific information available regarding total costs of any work to be performed, and the extent of work previously performed. Where the corporation has been identified as a PRP at a particular site, the corporation, using information available to it, also has reviewed and considered a number of other factors, including: (i) the financial resources of other PRPs involved in each site, and their proportionate share of the total volume of waste at the site; (ii) the existence of insurance, if any, and the financial viability of the insurers; and (iii) the success others have had in receiving reimbursement for similar costs under similar policies issued during the periods applicable to each site. FOREIGN SALES Fourteen percent (14%) of the sales of the corporation made in 2002 were to customers located outside the United States. In 2002, the corporation continued its efforts to develop international markets for its products and foreign sales (including sales for export). The corporation also continued to perform work under contracts with the Commonwealth of Australia and the Government of New Zealand for the supply of retrofit SH-2G helicopters. Additional information required by this item is included in the Segment Information section of the corporation's 2002 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) which section is incorporated herein by reference. Page 14 ITEM 2. PROPERTIES The corporation occupies approximately 3,507 thousand square feet of space throughout the United States and in Australia, Canada, Germany and Mexico, and distributed as follows: SEGMENT SQUARE FEET (in thousands as of 12/31/02) Aerospace 1,788 Industrial Distribution 1,213 Music Distribution 466 Corporate Headquarters 40 ----- Total 3,507
The Aerospace segment's principal facilities are located in Arizona, Connecticut, Florida, and Kansas; other facilities including offices and smaller manufacturing and assembly operations are located in several other states and in Dachsbach, Germany. These facilities are used for manufacturing, research and development, engineering and office purposes. The U.S. Government owns 154 thousand square feet of the space occupied by Kaman Aerospace Corporation in Bloomfield, Connecticut in accordance with a Facilities Lease Agreement with a five (5) year term expiring in March 2003. The Corporation is currently in the process of requesting a two-year extension of this lease. The corporation also occupies a facility in Nowra, New South Wales, Australia under a contract providing for a ten (10) year term expiring in June, 2010. The corporation is also in the process of closing one Aerospace segment facility located in Moosup, Connecticut (the "Moosup facility"). The closure is expected to be completed by the end of 2003. In addition, approximately 49,000 square feet of space listed above is attributable to the EDC division, which was sold on January 15, 2003. The Industrial Distribution segment's facilities are located throughout the United States with principal facilities located in California, Connecticut, New York, Kentucky and Utah. Additional Industrial Distribution segment facilities are located in Mexico and British Columbia, Canada. These facilities consist principally of regional distribution centers, branches and office space with a portion used for fabrication and assembly work. The Music Distribution segment's facilities in the United States are located in Connecticut, California, New Jersey and Tennessee. An additional Music Distribution facility is located in Ontario, Canada. These facilities consist principally of regional distribution centers and office space. Also included are facilities used for manufacturing musical instruments. Ap- Page 15 proximately 36,000 square feet of space listed above is attributable to a warehouse which was closed on February 28, 2003. The corporation occupies a 40 thousand square foot Corporate headquarters building in Bloomfield, Connecticut. The corporation's facilities are suitable and adequate to serve its purposes and substantially all of such properties are currently fully utilized with the exception of the Moosup facility and the helicopter assembly space located in Bloomfield. Many of the properties, especially within the Industrial Distribution segment, are leased. ITEM 3. LEGAL PROCEEDINGS The corporation is continuing settlement discussions with the Connecticut Department of Environmental Protection regarding the matter referred to as Rocque vs. Kaman previously reported by the corporation in its report on Form 10-K for fiscal year ended December 31, 2000, Document No.0000054381-01-500002 filed with the Securities and Exchange Commission on March 15, 2001. The complaint in this matter alleges certain regulatory violations (the majority of which are administrative in nature) at facilities located in Connecticut related to routine inspections which took place between 1988 and 1998. The complaint seeks civil penalties and injunctive relief. Management believes that in all cases where corrective action was required at the time of such inspections, such action was promptly taken. On June 25, 2002, a motion was filed in the United States District Court for the District of Oregon in the case of Robert G. Baker v. Kaman Aerospace Corporation, K-MAX Corporation, and Kamatics Corporation (all subsidiaries of the Corporation) seeking to amend the complaint in this action to include a claim for punitive damages in the amount of $25 million. The original complaint was filed on April 2, 2001 by Mr. Baker as a claim for $10 million in damages for economic and non-economic injuries arising out of an accident involving one of the corporation's K-MAX helicopters alleged to have been caused by the failure of a clutch assembly on the aircraft. This matter was previously reported by the Corporation in its report on Form 10-Q for the quarter ended June 30, 2002, Document No. 0000054381-02-000022 filed with the Securities and Exchange Commission on August 14, 2002. The parties agreed to settle the matter in December 2002 and the case was dismissed in January 2003. The suit filed by the hull insurer in the same accident was also settled in January 2003. Both of these matters were covered by insurance. There are two additional cases pending in which loss of use and property damages sustained in two other accidents involving K-MAX helicopters are alleged to have been caused by similar equipment failures. These claims are also covered by insurance. Page 16 The corporation believes that none of the foregoing legal proceedings, either individually or in the aggregate, is, or will be, material to the business of the corporation. Other legal proceedings or enforcement actions relating to environmental matters are discussed in the section entitled Compliance with Environmental Protection Laws. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2002. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS MARKET FOR CLASS A COMMON STOCK The Class A Common Stock of the corporation is traded on the NASDAQ Stock Market under the symbol "KAMNA". The corporation's Class B Common Stock is not actively traded. HOLDERS OF COMMON STOCK As of March 3, 2003, there were approximately 5,580 holders of record of the corporation's Class A Common Stock and 72 holders of record of the corporation's Class B Common Stock. INVESTOR SERVICES PROGRAM Shareholders of Kaman Class A common stock are eligible to participate in the Mellon Investor Services Program administered by Mellon Bank, N.A. which offers a variety of services including dividend reinvestment. A booklet describing the program may be obtained by writing to the program's Administrator, Mellon Investor Services, P.O. Box 590, Ridgefield Park, NJ 07660. Page 17 QUARTERLY CLASS A COMMON STOCK INFORMATION ----------------------------------------------------------------- High Low Close Dividend 2002 First $17.61 $13.46 $16.95 $.11 Second 18.81 14.82 16.76 .11 Third 17.50 11.00 12.25 .11 Fourth 13.75 9.42 11.00 .11 ----------------------------------------------------------------- 2001 First $19.50 $13.31 $16.38 $.11 Second 18.18 14.70 17.70 .11 Third 17.95 12.26 13.24 .11 Fourth 16.38 10.90 15.60 .11 ----------------------------------------------------------------- QUARTERLY DEBENTURE INFORMATION (6% Conv. Subordinated) ----------------------------------------------------------------- High Low Close 2002 First $ 99.00 $91.00 $99.00 Second - - - - No Trades - - - - - Third - - - - No Trades - - - - - Fourth 100.00 91.00 95.00 ----------------------------------------------------------------- 2001 First $ 92.00 $82.00 $ 92.00 Second 98.00 90.00 98.00 Third 99.00 98.00 99.00 Fourth 96.00 90.00 96.00 -----------------------------------------------------------------
NASDAQ market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions. Page 18 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS: ------------------------------------------------------------------- Number of securities Number of remaining securities to available for be issued Weighted- future issuance upon average under equity exercise of exercise compensation outstanding price of plans options, outstanding (excluding warrants options, securities and warrants reflected in Plan Category rights and rights column (a)) (a) (b) (c) ------------------------------------------------------------------- Equity compensation plans approved by security holders: Stock Incentive Plan 1,218,800 $ 14.08 321,700 Employees Stock Purchase Plan ------- ---- 865,300 Equity compensation plans not approved by security holders 0 0 0 ------------------------------------------------------------------- Total 1,218,800 $ 14.08 1,187,000 -------------------------------------------------------------------
ANNUAL MEETING The Annual Meeting of Shareholders of the corporation will be held on Tuesday, April 15, 2003 at 11:00 a.m. in the offices of the corporation, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002. Holders of all classes of Kaman securities are invited to attend, however it is expected that matters on the agenda for the meeting will require the vote of Class B shareholders only. Page 19 ITEM 6. SELECTED FINANCIAL DATA Information required by this item is included in the Five- Year Selected Financial Data section of the corporation's 2002 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and that section is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is included in the Management's Discussion and Analysis section of the corporation's 2002 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and that section is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The corporation has various market risk exposures that arise from its normal business operations, including interest rates, currency exchange rates, and supplier price changes as well as other factors described in the Forward-Looking Statements section of this report. The corporation's exposure to interest rate risk relates primarily to its financial instruments, and is managed principally through the use of long-term debt obligations with fixed interest rates and revolving credit facilities with variable interest rates. Fees and interest rates charged on revolving credit commitments and borrowings are based upon borrowing levels, market interest rates, and the corporation's credit rating. Letters of credit are generally considered borrowings for purposes of the corporation's revolving credit agreement. The corporation's primary interest rate risk is derived from its outstanding variable-rate revolving credit facilities. Changes in market interest rates or the corporation's credit rating would impact the interest rates on these facilities. There was some increase in the corporation's exposure to this market risk factor during 2002, as bank borrowings increased principally due to planned acquisitions. At December 31, 2002, the result of a hypothetical 1% increase in the average cost of the corporation's revolving credit facilities would have increased the loss before income taxes by $181,000. The corporation has manufacturing, sales, and distribution facilities in certain locations throughout the world and makes investments and conducts business transactions denominated in Page 20 various currencies, including the U.S. dollar, Euro, Canadian dollar, Mexican peso, and Australian dollar. The corporation's exposure to currency exchange rates is managed at the corporate and subsidiary operations levels as an integral part of the business. Management believes that any near-term changes in currency exchange rates would not materially affect the consolidated financial position, results of operations or cash flows of the corporation. The corporation's exposure to supplier sales policies and price changes relates primarily to its distribution businesses and the corporation seeks to manage this risk through its procurement policies and maintenance of favorable relationships with suppliers. Management believes that any near-term changes in supplier sales policies and price changes would not materially affect the consolidated financial position, results of operations or cash flows of the corporation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is included in the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Selected Quarterly Financial Data sections of the corporation's 2002 Annual Report to Shareholders (Exhibit 13 to this Form 10-K) and such sections are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Following is information concerning each Director and executive officer of Kaman Corporation including name, age, position with the corporation, and business experience during the last five years: Brian E. Barents Mr. Barents, 59, has been a Director since 1996. He is the retired President and Chief Executive Officer of Galaxy Aerospace Corp. Prior to that he was President and Chief Executive Officer of Learjet, Inc. He is also a director of Eclipse Aerospace Corp. Page 21 T. Jack Cahill Mr. Cahill, 54, has held various positions with Kaman Industrial Technologies Corporation, a subsidiary of the corporation, since 1975, and has been President of that subsidiary since 1993. E. Reeves Callaway, III Mr. Callaway, 55, has been a Director since 1995. He is the Chief Executive Officer of The Callaway Companies, an engineering services firm. Frank C. Carlucci Mr. Carlucci, 72, has been a Director since 1989. Prior to that he served as U.S. Secretary of Defense. He is the Chairman Emeritus of The Carlyle Group, merchant bankers. Mr. Carlucci is also a director of Ashland, Inc., Neurogen Corporation, Pharmacia Corp., United Defense, LP, and Texas Biotechnology Corporation. Laney J. Chouest, M.D. Dr. Chouest, 49, has been a Director since 1996. He is Owner-Manager of Edison Chouest Offshore, Inc. Candace A. Clark Ms. Clark, 48, has been Senior Vice President, Chief Legal Officer and Secretary since 1996. Prior to that she served as Vice President and Counsel. Ms. Clark has held various positions with the corporation since 1985. John A. DiBiaggio Dr. DiBiaggio, 70, has been a Director since 1984. He is now President Emeritus of Tufts University, having served as President until the fall of 2001. Prior to that he was President and Chief Executive Officer of Michigan State University. Ronald M. Galla Mr. Galla, 51, has been Senior Vice President and Chief Information Officer since 1995. Prior to that he served as Vice President and director of the corporation's Management Information Systems, a position which he held since 1990. Mr. Galla has been director of the corporation's Management Information Systems since 1984. Page 22 Robert M. Garneau Mr. Garneau, 59, has been Executive Vice President and Chief Financial Officer since 1995. Previously he served as Senior Vice President, Chief Financial Officer and Controller. Mr. Garneau has held various positions with the corporation since 1981. Huntington Hardisty Admiral Hardisty (USN-Ret.), 74, is the retired President of Kaman Aerospace International Corporation, a subsidiary of the corporation. He has been a Director since 1991 and served as a consultant to the corporation until February 28, 2003. He retired from the U.S. Navy in 1991 having served as Commander-in-Chief for the U.S. Navy Pacific Command since 1988. Edwin A. Huston Mr. Huston, 64, became a director at the 2002 Annual Meeting of Shareholders. Mr. Huston is the retired Vice Chairman of Ryder System, Incorporated, an international logistics and transportation solutions company. He served as Senior Executive Vice President Finance and Chief Financial Officer of that company from 1986 to 1999. Mr. Huston is a director of Unisys Corporation, Answerthink, Inc. and Enterasys Networks, Inc. C. William Kaman II Mr. Kaman, 51, has been a Director since 1992 and is Vice Chairman of the board of directors of the corporation. He is the retired Chairman and CEO of AirKaman of Jacksonville, Inc., an entity unaffiliated with the corporation. Previously he was Executive Vice President of the corporation and President of Kaman Music Corporation, a subsidiary of the corporation. John C. Kornegay Mr. Kornegay, 53, has been President of Kamatics Corporation, a subsidiary of the corporation, since 1999, and has held various positions with Kamatics Corporation since 1988. Eileen S. Kraus Ms. Kraus, 64, has been a Director since 1995. She is the retired Page 23 Chairman of Fleet Bank Connecticut. She is a director of The Stanley Works and Rogers Corporation. Paul R. Kuhn Mr. Kuhn, 61, has been a Director since 1999. He has been President and Chief Executive Officer of the corporation since August 1999 and was appointed to the additional position of Chairman in 2001. From 1998 to 1999 he was Senior Vice President, Operations, Aerospace Engine Business, for Coltec Industries, Inc. Prior to that he was Group Vice President, Coltec Industries, Inc. and President of its Chandler Evans division. He is a director of the Connecticut Business and Industry Association. Joseph H. Lubenstein Mr. Lubenstein, 55, became President of Kaman Aerospace Corporation, a subsidiary of the corporation, in 2001. Prior to that, he served for many years in a variety of senior management positions at Pratt & Whitney, a subsidiary of United Technologies Corporation, most recently as Vice President - Quality and Vice President - Materials. Walter H. Monteith, Jr. Mr. Monteith, 72, has been a Director since 1987. He is the retired Chairman of Southern New England Telecommuni- cations Corporation. Wanda L. Rogers Mrs. Rogers, 70, has been a Director since 1991. She is President and Chief Executive Officer of Rogers Helicopters, Inc. She is also a director of both Central Valley Community Bancorp and its subsidiary, Clovis Community Bank. Robert H. Saunders, Jr. Mr. Saunders, 61, became President of Kaman Music Corporation, a subsidiary of the corporation, in 1998. Prior to that, he served as Senior Vice President of the corporation from 1995 and also held the position of Senior Executive Vice President of Kaman Music Corporation during a portion of that period. Page 24 Richard J. Swift Mr. Swift, 58, became a director at the 2002 Annual Meeting of Shareholders. Mr. Swift is currently Chairman of the Financial Accounting Standards Advisory Council. In 2001, he retired as Chairman, President and Chief Executive Officer of Foster Wheeler Ltd., a provider of design, engineering, construction, and other services, a position he held since 1994. Prior to that, Mr. Swift held various positions at Foster Wheeler, having joined the company in 1972. Mr. Swift is a director of Ingersoll-Rand Company Ltd. and Public Service Enterprise Group Incorporated. Each Director and executive officer has been elected for a term of one year and until his or her successor is elected. The terms of all Directors and executive officers are expected to expire as of the Annual Meeting of the Shareholders and Directors of the corporation to be held on April 15, 2003. Section 16(a) Beneficial Ownership Reporting Compliance. Based upon information provided to the corporation by persons required to file reports under Section 16(a) of the Securities Exchange Act of 1934, no Section 16(a) reporting delinquencies occurred in 2002, except that Admiral Hardisty reported on a Form 5 filed for the year 2002 a gift of 500 shares of Class A common stock made to his spouse on August 29, 2001 which should have been reported on Form 5 for the year 2001. ITEM 11. EXECUTIVE COMPENSATION A) GENERAL. The following tables provide certain information relating to the compensation of the corporation's Chief Executive Officer and its four other most highly compensated executive officers. Page 25 B) SUMMARY COMPENSATION TABLE. Annual Compensation Long Term Compensation ------------------- ---------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) All Name and Other AWARDS Other Principal Salary Bonus Annual RSA Options/SARs LTIP Comp. Position Year ($) ($) Comp. ($)(1) (#Shares) Payments ($)(2) --------------------------------------------------------------------------- P. R. Kuhn 2002 800,000 240,000 ------- 174,000 21,000/ --- 13,497 Chairman, 52,000 President and Chief 2001 762,500 300,000 ------- 261,000 25,000/ --- 15,630 Executive 65,000 Officer 2000 650,000 570,000 ------- 154,688 20,000/--- 11,924 50,000 R.M. Garneau 2002 470,000 118,000 ------- 101,500 12,000/ --- 23,655 Executive 29,000 Vice Pres- 2001 450,000 150,000 ------- 163,125 12,500/ --- 25,056 ident and 40,000 Chief 2000 425,000 310,000 ------- 77,344 10,000/ --- 25,181 Financial 30,000 Officer J.H. Lubenstein President, 2002 325,000 65,000 ------- 72,500 9,000/ --- 7,766 Kaman 22,000 Aerospace 2001 300,000 160,000 ------- 406,875 45,000/ --- 2,875 Corporation 45,000 2000 -------(3) ------ ------- ------ ------ --- ----- T.J.Cahill 2002 280,000 56,000 ------- 58,000 7,000/ --- 12,229 President, 18,000 Kaman 2001 280,000 90,000 ------- 97,875 9,000/ --- 15,077 Industrial 20,000 Technologies 2000 260,000 160,000 ------- 41,250 6,000/ --- 15,670 Corporation 15,000 R.H.Saunders Jr. President, 2002 245,000 196,000 ------- 50,750 6,000/ --- 18,384 Kaman Music 15,000 Corporation 2001 235,000 85,000 ------- 81,563 8,000/ --- 15,681 15,000 2000 210,000 110,000 ------- 41,250 6,000/ --- 13,832 10,000 1. As of December 31, 2002, aggregate restricted stock holdings and their year end value were: P.R. Kuhn, 53,800 shares valued at Page 26 $591,800; R.M. Garneau, 22,200 shares valued at $244,200; J.H. Lubenstein, 25,000 shares valued at $275,000; T.J.Cahill, 13,200 shares valued at $145,200; and R.H. Saunders, Jr., 12,100 shares valued at $133,100. Restrictions generally lapse at the rate of 20% per year for all awards, beginning one year after the grant date provided recipient remains an employee of the corporation or a subsidiary. Awards reported in this column are as follows: P. R. Kuhn, 12,000 shares in 2002, 16,000 shares in 2001, and 15,000 shares in 2000; R. M. Garneau, 7,000 shares in 2002, 10,000 shares in 2001, and 7,500 shares in 2000; J.H. Lubenstein, 5,000 shares in 2002, and 25,000 shares in 2001; T. J. Cahill, 4,000 shares in 2002, 6,000 shares in 2001, and 4,000 shares in 2000; R. H. Saunders, Jr., 3,500 shares in 2002, 5,000 shares in 2001, and 4,000 in 2000. Dividends are paid on the restricted stock. 2. Amounts reported in this column consist of: P.R. Kuhn, $7,173 - Senior executive life insurance program ("Executive Life"), $5,000 - employer matching contributions to the Kaman Corporation Thrift and Retirement Plan (the "Thrift Plan employer match"); $1,324 - medical expense reimbursement program ("MERP"); R.M. Garneau, $5,949 - Executive Life, $851 - Officer 162 Insurance Program, $5,000 - Thrift Plan employer match, $2,155 - MERP, $9,700 - all supplemental employer contributions under the Kaman Corporation Deferred Compensation Plan ("supplemental employer contributions"); J. H. Lubenstein, $2,766 - Executive Life, $5,000 - Thrift Plan employer match; T. J. Cahill, $3,153 - Executive Life, $5,000 - Thrift Plan employer match, $676 - MERP, $3,400 - supplemental employer contributions; R.H. Saunders, Jr., $6,585 - Executive Life, $5,000 - Thrift Plan employer match, $3,491 - MERP, $3,308 - supplemental employer contributions. 3. Mr. Lubenstein joined the Corporation in July 2001.
Page 27 C) OPTION/SAR GRANTS IN THE LAST FISCAL YEAR: ---------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term* ---------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) % of Total Options/ SARs** Options/ Granted to SARs** Employees Exercise or Granted in Fiscal Base Price Expiration Name (#) Year ($/Sh) Date 5%($) 10%($) ---------------------------------------------------------------------------- P. R. Kuhn 21,000/ 9.93/ 14.5000 2/12/12 665,685 1,686,976 52,000 38.24 R. M. Garneau 12,000/ 5.67/ 14.5000 2/12/12 373,878 947,480 29,000 21.32 J. H. Luben- 9,000/ 4.26/ 14.5000 2/12/12 282,688 716,387 stein 22,000 16.18 T. J. Cahill 7,000/ 3.31/ 14.5000 2/12/12 227,974 577,732 18,000 13.24 R. H. Saunders 6,000/ 2.84/ 14.5000 2/12/12 191,498 485,295 15,000 11.03 *The information provided herein is required by Securities and Exchange Commission rules and is not intended to be a projection of future common stock prices. **Stock Appreciation Rights ("SARs") are payable in cash only, not in shares of common stock. Options and SARs relate to the corporation's Class A common stock and generally vest at the rate of 20% per year, beginning one year after the grant date provided the recipient remains an employee of the corporation or a subsidiary.
Page 28 D) STOCK OPTION EXERCISES IN THE LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION VALUES. Number of Shares under- Value of lying Unexercised Unexercised in-the-money options options* Shares at FY-end (#) at FY-end ($) acquired on Value exercisable/ exercisable/ Name Exercise(#) realized unexercisable unexercisable (a) (b) (c) (d) (e) ----------------------------------------------------------------------- P. R. Kuhn none - 73,000/93,000 $ 5,500/8,250 R. M. Garneau 26,500 $213,038 27,900/33,100 $ 2,750/4,125 J. H. Lubenstein none - 9,000/45,000 0/ 0 T. J. Cahill none - 40,200/22,300 $ 7,275/2,475 R. H. Saunders none - 17,600/19,400 $ 3,525/2,475 *Difference between the 12/31/02 Fair Market Value and the exercise price.
Page 29 STOCK APPRECIATION RIGHT ("SAR")EXERCISES IN THE LAST FISCAL YEAR AND YEAR-END SAR VALUES. Value of Number of Unexercised Unexercised in-the-money SARs SARs* SARs at FY-end (#) at FY-end ($) acquired on Value exercisable/ exercisable/ Name Exercise(#) realized unexercisable unexercisable (a) (b) (c) (d) (e) ----------------------------------------------------------------------- P. R. Kuhn none none 141,000/206,000 $13,750/20,625 R. M. Garneau 75,000 $386,250 73,000/ 93,500 $ 8,250/12,375 J. H. Lubenstein none none 9,000/ 58,000 0/ 0 T. J. Cahill " " 75,000/ 50,500 $ 4,125/ 6,188 R. H. Saunders " " 10,000/ 35,000 $ 2,750/ 4,125 *Difference between the 12/31/02 Fair Market Value and the exercise price(s).
Page 30 E) LONG TERM INCENTIVE PLAN AWARDS: Except as described above, no long term incentive plan awards were made to any named executive officer in the last fiscal year. F) PENSION AND OTHER DEFINED BENEFIT DISCLOSURE. The following table shows estimated annual benefits payable at normal retirement age to participants in the corporation's Pension Plan at various compensation and years of service levels using the benefit formula applicable to Kaman Corporation. Pension benefits are calculated based on 60 percent of the average of the highest five consecutive years of "covered compensation" out of the final ten years of employment less 50 percent of the primary social security benefit, reduced proportionately for years of service less than 30 years: PENSION PLAN TABLE Years of Service Remuneration* 15 20 25 30 35 --------------------------------------------------------------- 125,000 32,523 43,581 53,988 65,046 65,046 150,000 40,023 53,631 66,438 80,046 80,046 175,000 47,523 63,681 78,888 95,046 95,046 200,000 55,023 73,731 91,338 110,046 110,046 225,000 62,523 83,781 103,788 125,046 125,046 250,000 70,023 93,831 116,238 140,046 140,046 300,000 85,023 113,931 141,138 170,046 170,046 350,000 100,023 134,031 166,038 200,046 200,046 400,000 115,023 154,131 190,938 230,046 230,046 450,000 130,023 174,231 215,838 260,046 260,046 500,000 145,023 194,331 240,738 290,046 290,046 750,000 220,023 294,831 365,238 440,046 440,046 1,000,000 295,023 395,331 489,738 590,046 590,046 1,250,000 370,023 496,831 614,238 740,046 740,046 1,500,000 445,023 596,331 738,738 890,046 890,046 1,750,000 520,023 696,831 863,238 1,040,046 1,040,046 2,000,000 595,023 797,331 988,738 1,190,046 1,190,046 *Remuneration: Average of the highest five consecutive years of "Covered Compensation" out of the final ten years of service.
Page 31 "Covered Compensation" means "W-2 earnings" or "base earnings", if greater, as defined in the Pension Plan. W-2 earnings for pension purposes consist of salary (including 401(k) and Section 125/129 Plan contributions but not deferrals under a non-qualified Deferred Compensation Plan), bonus and taxable income attributable to restricted stock awards, stock appreciation rights, and the cash out of employee stock options. Salary and bonus amounts for the named executive officers for 2002 are as shown on the Summary Compensation Table. Compensation deferred under the corporation's non-qualified deferred compensation plan is included in Covered Compensation here because it is covered by the corporation's unfunded supplemental employees' retirement plan for the participants in that plan. Current Compensation covered by the Pension Plan for any named executive whose Covered Compensation differs by more than 10% from the compensation disclosed for that executive in the Summary Compensation Table: Mr. Kuhn, $1,354,066; Mr. Garneau, $1,119,821; Mr. Cahill, $444,501; Mr. Lubenstein, $579,000; Mr. Saunders, $382,129. Federal law imposes certain limitations on annual pension benefits under the Pension Plan. For the named executive officers who are participants, the excess will be paid under the Corporation's unfunded supplemental employees' retirement plan. The executive officers named in Item 11(b) are participants in the plan and as of December 31, 2002, had the number of years of credited service indicated: Mr. Kuhn - 8.0; Mr. Garneau - 21.5 years; Mr. Cahill - 27.7 years; Mr. Lubenstein - 2.7 years; Mr. Saunders - 7.0. Benefits are computed generally in accordance with the benefit formula described above. G) COMPENSATION OF DIRECTORS. Effective January 1,2002, non- employee members of the Board of Directors of the corporation receive an annual retainer of $25,000 and a fee of $1,200 for attending each meeting of the Board and each meeting of a Committee of the Board, except that the Chairman of each committee receives a fee of $1,600 for attending each meeting of that Committee. The Vice Chairman is entitled to a fee of $2,500 per meeting when serving as the Chairman. Such fees may be received on a deferred basis. In addition, each non-employee director will receive a Restricted Stock Award for 500 shares (issued pursuant to the corporation's Stock Incentive Plan), providing for immediate vesting upon election as a director at the corporation's 2003 Annual Meeting of Shareholders. Page 32 H) EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS. The corporation has entered into Employment Agreements and Change in Control Agreements with certain executive officers, copies of which were filed as exhibits to the following filings made by the corporation with the Securities and Exchange Commission: Form 10-Q (Document 54381-99-14) filed on November 12, 1999; Form 10-K (Document No. 54381-00-03 filed on March 21, 2000; and Form 10-Q (Document 54381-00-500006) filed on November 14, 2000. Form 10-Q filed August 14, 2001 (Document No. 0000054381-01-500011 and Form 10-Q filed November 14, 2001 (Document No. 0000054381-01-500016. The employment agreements do not have a fixed term and generally provide for a severance payment to be made to any such officer if he or she is terminated from employment (other than for willful failure to perform proper job responsibilities or violations of law) or if he or she leaves employment for good reason (e.g., due to a diminution in job responsibilities). The change in control agreements generally provide that, for a three year period following a change in control of Kaman Corporation or, in certain cases, a subsidiary thereof, a severance payment will be made to any such officer if his or her employment ends following the change in control (unless the termination was for cause, the officer dies or becomes disabled or if he or she leaves employment without good reason). The change in control agreements do not have a fixed term. Admiral Hardisty's consulting agreement with the Corporation, which was renewed for a period of one year effective March 1, 2002 at a per diem rate of $1,000.00 expired on February 28, 2003. A copy of such agreement was attached as Exhibit 10(f)(I) to the Corporation's Form 10-K for fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission on March 15, 2002. The corporation has also entered into an agreement with Walter Kozlow retaining him as a consultant for a period of two years following his retirement from regular employment effective December 31, 2001 at an annual rate of $242,500. A copy of such agreement was attached to the corporation's Form 10-Q filed with the Securities and Exchange Commission on August 14, 2001. Page 33 Except as disclosed in Item 13, and except as described above and in connection with the corporation's Pension Plan and the corporation's non-qualified Deferred Compensation Plan, the corporation has no other employment contract, plan or arrangement with respect to any named executive officer which relates to employment termination for any reason, including resignation, retirement or otherwise, or a change in control of the corporation or a change in any such executive officer's responsibilities following a change of control, which exceeds or could exceed $100,000. I) Not Applicable. J) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS. 1) The following persons served as members of the Personnel and Compensation Committee of the Corporation's Board of Directors during the last fiscal year: Brian E. Barents, E. Reeves Callaway, III, Frank C. Carlucci, Laney J. Chouest, M.D., Wanda L. Rogers, and Richard J. Swift. None of these individuals was an officer or employee of the corporation or any of its subsidiaries during either the last fiscal year or any portion thereof in which he or she served as a member of the Personnel and Compensation Committee. 2) During the last fiscal year no executive officer of the corporation served as a director of or as a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of, or on the Personnel and Compensation Committee of the corporation. K) Not Applicable. L) Not Applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. Following is information about persons known to the corporation to be beneficial owners of more than five percent (5%) of the Corporation's voting securities. Ownership is direct unless otherwise noted. Page 34 ----------------------------------------------------------------- Number of Shares Class of Beneficially Owned Common Name and Address as of February 1, Percentage Stock Beneficial Owner 2003 of Class ----------------------------------------------------------------- Class B Charles H. Kaman 258,375(1),(2) 38.69% Kaman Corporation 1332 Blue Hills Avenue Bloomfield, CT 06002 Holders of Mr. Kaman's (2) Power of Attorney c/o John C. Yavis, Jr. Murtha Cullina LLP CityPlace I 185 Asylum Street Hartford, CT 06105 Class B Newgate Associates 199,802(3),(4) 29.91% Limited Partnership c/o Murtha Cullina, LLP CityPlace I 185 Asylum Street Hartford, CT 06103 Voting Trustees pursuant (4) to a Voting Trust Agreement, dated as of August 14, 2000 c/o John C. Yavis, Jr. Murtha Cullina LLP CityPlace I 185 Asylum Street Hartford, CT 06105 Class B C. William Kaman, II 64,446(5) 9.65% 5367 Florence Point Drive Fernandina Beach, FL 32034 Class B Robert D. Moses 51,177(6) 7.66% Farmington Woods Avon, CT 06001 Page 35 (1) Excludes 1,471 shares held by Mrs. Kaman. Mr. Kaman shares beneficial ownership of these shares with the holders of a Power of Attorney, as described in note (2) below. (2) The power to vote Mr. Kaman's shares of Class B common stock is shared through a durable power of attorney (the "Power of Attorney") with certain individuals who have the authority to vote Mr. Kaman's shares by majority vote. These individuals are: John S. Murtha, a director emeritus of the corporation and of counsel to the Hartford, Connecticut law firm, Murtha Cullina LLP, counsel to the corporation, Robert M. Garneau, Executive Vice President and Chief Financial Officer of the corporation, Roberta C. Kaman, Mr. Kaman's wife, C. William Kaman II, Mr. Kaman's son and a director and Vice Chairman of the Board of the corporation, Steven W. Kaman, Mr. Kaman's son, and Cathleen H. Kaman-Wood, Mr. Kaman's daughter. (3) These shares are subject to a voting trust agreement dated August 14, 2000 (the "Voting Trust"), as described in note (4) below. Newgate shares beneficial ownership of such shares with the voting trustees of such trust, as described in note (4) below. (4) The power to vote the shares of Newgate Associates Limited Partnership is vested in eleven voting trustees (the "Voting Trustees") under the Voting Trust, which has a term of ten (10) years, subject to renewal. The Voting Trustees consist of the six (6) individuals identified in footnote (2) above and the following five (5) individuals: T. Jack Cahill, President of Kaman Industrial Technologies Corporation, a subsidiary of the corporation, Paul R. Kuhn, Chairman, President, and Chief Executive Officer of the corporation, Huntington Hardisty and Eileen S. Kraus, directors of the corporation, and John C. Yavis, Jr., a partner of Murtha Cullina LLP, counsel to the corporation. (5) Excludes 4,800 shares held as trustee for the benefit of certain family members. (6) Includes 39,696 shares held by a partnership controlled by Mr. Moses.
Page 36 (b) SECURITY OWNERSHIP OF MANAGEMENT. The following is information concerning beneficial ownership of the corporation's stock by each Director of the corporation, each executive officer of the corporation named in the Summary Compensation Table, and all Directors and executive officers of the corporation as a group. Ownership is direct unless otherwise noted. Number of Shares Class of Beneficially Owned Percentage Name Common Stock as of February 1, 2003 of Class -------------------------------------------------------------------- Brian E. Barents Class A 3,000 * T. Jack Cahill Class A 101,856(1) * E. Reeves Callaway Class A 3,000 * Frank C. Carlucci Class A 6,000(2) * Laney J. Chouest Class A 4,923 * John A. DiBiaggio Class A 3,000 * Robert M. Garneau Class A 106,518(3) * Class B 24,404 3.48% Huntington Hardisty Class A ------(4) * Edwin A. Huston Class A 1,000 * C. William Kaman, II Class A 60,388(5) * Class B 64,446(6) 9.65% Paul R. Kuhn Class A 228,869(7) * Class B 3,288 * Eileen S. Kraus Class A 3,922 * Joseph H. Lubenstein Class A 49,800(8) * Walter H. Monteith, Jr. Class A 3,200 * Wanda L. Rogers Class A 3,000 * Robert H. Saunders, Jr. Class A 45,922(9) * Class B 720 * Richard J. Swift Class A 1,000 * All Directors and Executive Officers Class A 730,058(10) 3.35% as a group ** Class B 94,020 14.08% * Less than one percent. ** Excludes 22,400 Class A shares held by spouses of certain Directors and executive officers. (1) Includes 47,600 shares subject to stock options exercisable or which will become exercisable within 60 days (2) Includes 6,000 shares held jointly with Mrs. Carlucci. (3) Includes 38,100 shares subject to stock options exercisable or which will become exercisable within 60 days (4) Excludes 22,400 shares held by Mrs. Hardisty. (5) Excludes 89,891 shares held by Mr. Kaman as Trustee, in which shares Mr. Kaman disclaims any beneficial ownership. Page 37 (6) Excludes 4,800 shares held by Mr. Kaman as Trustee in which shares Mr. Kaman disclaims any beneficial ownership. (7) Includes 106,200 shares subject to stock options exercisable or which will become exercisable within 60 days. (8) Includes 19,800 shares subject to stock options exercisable or which will become exercisable within 60 days. (9) Includes 23,800 shares subject to stock options exercisable or which will become exercisable within 60 days. (10) Includes 294,200 shares subject to stock options which will become exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 2002, the corporation obtained legal services in the amount of $1,013,910 from the Hartford, Connecticut law firm of Murtha Cullina LLP of which Mr. John S. Murtha, is of counsel and Mr. John C. Yavis, Jr. is a partner. Mr. Murtha, a director emeritus of the corporation, is currently one of six holders of a power of attorney described in footnote (2) to the table entitled "Security Ownership of Certain Beneficial Owners", and a voting trustee of the Voting Trust described in footnote (4) of such table. Mr. Yavis currently serves as a voting trustee of the Voting Trust and as the general partner of Newgate Associates Limited Partnership. PART IV ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures. Within the ninety days prior to the date of this report, management, with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the corporation's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14 or 15d-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of February 3, 2003, that the corporation's disclosure controls and procedures are effective in providing assurance that information required to be disclosed by the corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported upon in a timely manner. We note, however, that even the most well designed and executed controls systems are subject to inherent limitations and as a result, the control system cannot provide absolute assurance that its objectives will be met under all potential future conditions. Page 38 Changes in Internal Controls. There have been no significant changes in the corporation's internal controls or in other factors that could significantly affect these controls and procedures subsequent to February 3, 2003. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. See Item 8 concerning financial statements appearing as Exhibit 13 to this Report. (a)(2) FINANCIAL STATEMENT SCHEDULES. An index to the financial statement schedules immediately precedes such schedules. (a)(3) EXHIBITS. An index to the exhibits filed or incorporated by reference immediately precedes such exhibits. (b) REPORTS ON FORM 8-K: A report on Form 8-K was filed with the Securities and Exchange Commission on October 21, 2002, File No. 333-66179, Document No. 0000054381- 02-0000026 concerning the corporation's acquisition of Latin Percussion, Inc. Page 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Bloomfield, State of Connecticut, on this 26th day of March, 2003. KAMAN CORPORATION (Registrant) /s/ Paul R. Kuhn By Paul R. Kuhn, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature: Title: Date: --------------------------------------------------------------- /s/ Paul R. Kuhn Paul R. Kuhn Chairman, President, and March 26, 2003 Chief Executive Officer and Director /s/ Robert M. Garneau Robert M. Garneau Executive Vice President March 26, 2003 and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Paul R. Kuhn Paul R. Kuhn March 26, 2003 Attorney-in-Fact for: Brian E. Barents Director E. Reeves Callaway, III Director Frank C. Carlucci Director John A. DiBiaggio Director Huntington Hardisty Director Edwin A. Huston Director C. William Kaman, II Director Eileen S. Kraus Director Walter H. Monteith, Jr. Director Wanda L. Rogers Director Richard J. Swift Director Page 40 CERTIFICATIONS I, Paul R. Kuhn, certify that: 1. I have reviewed this annual report on Form 10-K of Kaman Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and Page 41 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 By: /s/ Paul R. Kuhn --------------------------- Paul R. Kuhn Chairman, President and Chief Executive Officer (Duly Authorized Officer) Page 42 CERTIFICATIONS I, Robert M. Garneau, certify that: 1. I have reviewed this annual report on Form 10-K of Kaman Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and Page 43 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 By: /s/ Robert M. Garneau --------------------------- Robert M. Garneau Executive Vice President and Chief Financial Officer (Duly Authorized Officer) Page 44 KAMAN CORPORATION AND SUBSIDIARIES Index to Financial Statement Schedules Report of Independent Auditors Financial Statement Schedules: Schedule V - Valuation and Qualifying Accounts Page 45 REPORT OF INDEPENDENT AUDITORS KPMG LLP Certified Public Accountants One Financial Plaza Hartford, Connecticut 06103 The Board of Directors and Shareholders Kaman Corporation: Under date of January 28, 2003, we reported on the consolidated balance sheets of Kaman Corporation and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2002, as contained in the 2002 annual report to shareholders. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for 2002. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Hartford, Connecticut January 28, 2003 Page 46 KAMAN CORPORATION AND SUBSIDIARIES SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands) YEAR ENDED DECEMBER 31, 2002 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 2002 EXPENSES OTHERS DEDUCTIONS 2002 Allowance for doubtful accounts $3,939 $1,024 $ 110(B) $2,220(A) $2,853 ====== ====== ====== ====== ====== Accumulated amortization $1,817 $-----(C) $----- $----- $1,817 of goodwill ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 2001 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 2001 EXPENSES OTHERS DEDUCTIONS 2001 Allowance for doubtful accounts $4,636 $ 868 $277(B) $1,842(A) $3,939 ====== ====== ====== ====== ====== Accumulated amortization $1,708 $ 109 $----- $----- $1,817 of goodwill ====== ====== ====== ====== ====== YEAR ENDED DECEMBER 31, 2000 Additions BALANCE CHARGED TO BALANCE JANUARY 1, COSTS AND DECEMBER 31, DESCRIPTION 2000 EXPENSES OTHERS DEDUCTIONS 2000 Allowance for doubtful accounts $4,519 $1,490 $----- $1,373(A) $4,636 ====== ====== ====== ====== ====== Accumulated amortization $1,598 $ 110 $----- $----- $1,708 of goodwill ====== ====== ====== ====== ====== (A) Write-off of bad debts, net of recoveries. (B) Additions to allowance for doubtful accounts attributable to acquisitions. (C) In accordance with FASB 142, no amortization expense for goodwill has been recorded in 2002.
Page 47 KAMAN CORPORATION INDEX TO EXHIBITS Exhibit 3a The Amended and Restated by reference Certificate of Incorporation of the corporation, as amended, has been filed with the Securities and Exchange Commission on form S-8POS on May 11, 1994, as Document No. 94-20. Exhibit 3b The By-Laws of the corporation by reference as amended on February 9, 1999 has been filed with the Securities and Exchange Commission on Form 10-K on March 16, 1999, as Document No. 99-03, and as amended by Document No. 0000054381-02-000022 filed on August 14, 2002. Exhibit 4a Indenture between the corporation by reference and Manufacturers Hanover Trust Company, as Indenture Trustee, with respect to the Corporation's 6% Convertible Subordinated Debentures, has been filed as Exhibit 4.1 to Registration Statement No. 33 - 11599 on Form S-2 of the corporation filed with the Securities and Exchange Commission on January 29, 1987. Exhibit 4b Revolving Credit Agreement by reference between the corporation and The Bank of Nova Scotia and Fleet National Bank as Co-Administrative Agents and Bank One, N.A. as the Documentation Agent and The Bank of Nova Scotia and Fleet Securities, Inc. as the Co-Lead Arrangers and Various Financial Institutions dated as of November 13, 2000 filed as Exhibit 4 to form 10-Q filed with the Securities and Exchange Commission on November 14, 2000, Document No. 0000054381-00-500006, as amended by Document No. 0000054381-02- 000022 filed on August 14, 2002. Page 48 Exhibit 4c Credit Agreement between the attached corporation, RWG Frankenjura- Industrie Flugwerklager GmbH, and Wachovia Bank, N.A., dated July 29, 2002. Schedules and Exhibits to the Credit Agreement, which are listed in its Table of Contents, are omitted but will be provided to the Commission upon request. Exhibit 4d The corporation is party to certain long-term debt obligations, such as real estate mortgages, copies of which it agrees to furnish to the Commission upon request. Exhibit 10a The Kaman Corporation 1993 Stock attached Incentive Plan as amended effective February 25, 2003. Exhibit 10b The Kaman Corporation Employees by reference Stock Purchase Plan as amended effective November 19, 1997 has been filed as an exhibit to the Corporation's Form 10-K Document No. 0000054381-98-09 filed with the Securities and Exchange Commission on March 16, 1998, as amended by Document No. 0000054381-98-13 filed on March 27, 1998. Exhibit 10c Kaman Corporation Supplemental by reference Employees' Retirement Plan, as amended has been filed as an exhibit to the Corporation's Form 10-K, Document No. 0000054381-02-000005 filed with the Securities and Exchange Commission on March 14, 2002. Exhibit 10d Amended and Restated Deferred attached Compensation Plan (Effective as of November 12, 2002, except where otherwise indicated). Exhibit 10e(i) Kaman Corporation Cash Bonus Plan by reference (Amended and Restated Effective as of January 1, 2002) and First Amendment thereto was filed as an exhibit to the Corporation's Form 10-K Document No. 0000054381-02-000005, filed with the Securities and Exchange Commission on March 14, 2002. Page 49 Exhibit 10e(ii) Second Amendment to Kaman attached Corporation Cash Bonus Plan (Amended and Restated Effective as of January 1, 2002). Exhibit 10f Employment Agreements and Change in by reference Control Agreements with certain executive officers have been filed as exhibits to the following filings by the corporation with the Securities and Exchange Commission: Form 10-Q (Document No. 54381-99-14) filed November 12, 1999; Form 10-K (Document No. 54381-00-03) filed March 21, 2000; Form 10-Q (Document No. 54381-00-500006) Filed November 14, 2000; and Form 10-Q (Document No. 54381-01-500015) filed November 14, 2001. Exhibit 10f(I) Agreement between Kaman Aerospace by reference Corporation and Huntington Hardisty effective March 1, 2002 has been filed as exhibit to the Corporation's Form 10-K, Document No. 0000054381-02-000005 filed with the Securities and Exchange Commission on March 14, 2002. Exhibit 10g Notice of change of control by reference filed as Exhibit 99 to the corporation's Form 8-K dated August 16, 2000 as Document No. 54381-00-000010. Exhibit 11 Statement regarding computation attached of per share earnings. Exhibit 13 Portions of the Corporation's attached 2002 Annual Report to Shareholders as required by Item 8. Exhibit 21 Subsidiaries. attached Exhibit 23 Consent of Independent Auditors. attached Exhibit 24 Power of attorney under which attached this report has been signed on behalf of certain directors. Page 50 Exhibit 99.1 Certification of Chief Executive attached Officer Exhibit 99.2 Certification of Chief Financial attached Officer Page 51